Stock Market or Art Market? Today’s era is an era of the revival of the Indian Art Market as the demand of Indian artists is growing globally and the market has possessed a strong growth in recent times. Investing in art, for instance, is growing in popularity. 55% of wealth managers reported their clients asking for help with investments in art and collectables. In 2018, the Annual Auction turnover was up by 29% as compared to the previous year. This was considered to be the fastest pace of growth in any Asian country, except South Korea. Beside this, our country’s Annual Fine Art auction turnover amounted to $72.5 million in 2018, giving India 12th place in the Global Art Market behind Australia.
FINANCIAL SIDE OF ART INVESTING
Art is becoming increasingly popular as an investment asset and so much so that people are now investing in art more than wine, according to the wealth report by real estate firm Douglas Elliman. Placing your wealth in the art market for the long term for high-value artworks can be comparable to investing in real estate or luxury items, where value increases over time. This means that when you find the right piece of artwork, you become the owner of a tangible asset which, unlike some other investments such as stocks and shares, will always have a residual value.
In periods of rising inflation, art continues to do well throughout different market sectors. In fact, according to the Deloitte Luxembourg & Art Tactic Art & Finance Report, 73% of wealth managers have said their clients wanted to include art and other collectible assets in their wealth reports, in order to have a consolidated view of their wealth. True enough, the returns you get from an art investment is significantly better especially with rising prices in the economy.
In the graph below, we can see how the online art sales has increased in the recent years from 1,507 million dollars in 2013 to 4,636 million dollars in 2018.
WHY INVESTING IN ART CAN BE A RISK?
For all of its advantage, investing in art is something like a double-edged sword. A painting which is worth a million today can just be an ordinary wall hanging the next day. For example, the Wall Street trader who had bought a Richard Prince ‘Nurse’ painting for 8 million dollars and had sold it for less than 3 million dollars, not even half the cost price. The most spectacular returns invariably come from what one might call speculative buying, we might even call it art ‘futures’. That is, buying the work of young, emerging artists and hoping they make the grade, or acquiring the unfashionable and waiting — how long? —for the pendulum of taste to change direction. As the London picture dealer Julian Agnew says, “Buying art is a high-risk business” in nowhere wrong.
FINANCIAL SIDE OF INVESTING IN STOCK MARKET
George F. Baker, an American financier and philanthropist once famously gave the mantra: “To make money in stocks you must have the vision to see them, the courage to buy them, and the patience to hold them.” There are literally thousands of companies listed on the BSE (Sensex) and NSE (Nifty). Unless you are armed with an approach that you could use to filter out, you would get lost in the sea of companies. So before investing in the stock market, one must have the proper knowledge on how to deal with stocks.
Yes, the stock market has risk. The key to success in the stock market is a diverse, long term investment plan that will serve you well no matter what the future holds. For many people, a simple portfolio made up of index funds is perfect. There is no need to pick single stocks or make your investments more complicated.
Investing in US market gives more superior returns as compared to the Indian markets. In the graph below, we can see how the US market consistently outperforms the Indian market over the last 10 years. Here, we compare the returns of the Dow Jones Index in the US to the BSE Sensex. During this, DOW returned 196%, while the Sensex returned 150%.
WHY INVESTING IN STOCK MARKET CAN BE A RISK?
When investing in the stock market, the higher the return the greater the risk of losing money. Stock market prices are linked to the issuing company’s earnings. When a company is experiencing financial difficulties, the price of the stock can decline rapidly. Stock market volatility can lead to a substantial loss of investment. Also, the young investors think they can earn in crores in the stock market without even knowing anything about returns compared to art. This can turn up as a great risk resulting in high losses. As Warren Buffet said, “Never invest in a business you cannot understand.” Prices of stocks seem to be a mystery to even the most experienced investor. There are often market swings of over 1% per day. Many people lack patience and do not wait for the right time also end up incurring huge losses.
At the end, we know that art has no correlation to the stock market, it means paintings can go up in value even when the market crashes making it a good diversification for an investment portfolio. Investing in art isn’t something you should do on a whim. Instead, take time to get to know the market and what you can expect from art investments. Art price is a good place to start for researching prices in general. If you’re interested specifically in auctions, Artnet’s price database another valuable resource. And on the other hand, success can be achieved by investing in the stock market by a just simple formula: Investing Success = Identifying a Good Company + Buying at Right Price + Holding with Patience.